President Barack Obama said in his State of the Union address last week that it’s time to “free our families and businesses from the painful spikes in gas prices we’ve put up with for far too long.” But the pain persists. Gas prices have risen for 32 consecutive days, an increase totaling 43 cents per gallon since Jan. 17, according to the Automobile Association of America. Now hovering around $3.73, prices show no signs of falling.
If Obama were serious about reducing costs for Americans, he would abandon his lofty rhetoric about America’s green future and take concrete steps to make energy more affordable by approving the Keystone pipeline, easing regulations on shale-oil production, and reining in the Federal Reserve.
It’s not a foreign dependence problem. Blaming OPEC for high prices is a convenient political tool, and President Jimmy Carter said in his malaise speech in 1979 that OPEC was “the direct cause” of long gas lines, inflation, and unemployment. And though it might always be politically expedient to blame forces abroad, this isn’t a price gouging problem. OPEC production, though varied, has remained stagnant while its market share has declined since 1973. Non-OPEC countries have more than doubled oil production during the same period to meet rising demand.
The primary artificial restriction on market supply is Obama’s failure to enact policies that would expand U.S. production further. The Keystone pipeline, which would create an estimated 20,000 jobs and produce roughly 830,000 barrels of oil per day if approved, has sat on Obama’s desk collecting dust for more than 1,600 days. Obama claims to support energy independence but prefers to pander to environmentalists who want everyone to ride bikes to work. This will play poorly with the majority of Americans as high prices linger and Keystone languishes.
Obama would like to take credit for the shale-oil boom that has lowered natural-gas prices, but he has done almost nothing to make it possible. It has taken place despite the administration’s onerous regulations. In 2011, federal oil production fell 14 percent, the largest annual decline in ten years. New technology such as hydraulic fracturing produces oil from previously untapped shale formations. But Obama insists upon continuing fruitless experiments with new energy sources instead of issuing more domestic oil production permits.
Taxes and regulations complicate the problem further. In California, gas has reached $5 per gallon. The sunny western state has become a jungle of red tape, and the Obama administration should offer some relief before the rest of the country suffers the same consequence.
But the gas price problem can’t be alleviated without reevaluating the hidden culprit in our midst, the centenarian creature from Jekyll Island. The Federal Reserve, which Obama failed to mention even once in his entire State of the Union address, distorts the supply and demand for dollars, impacting the price of crude oil. Attempting to save the economy in 2008, the Fed misperceived a counterparty risk problem for a liquidity problem, pumping cash into the market instead of facilitating balance sheet transparency for banks. The Fed began loosening credit by lowering the discount rate in late 2007. But by the time Lehman Brothers collapsed in Sept. 2008, the Federal Reserve decided the range of monetary tools it had become accustomed to using would be insufficient to meet the size of the crisis caused by the sub-prime loan collapse.
The continuation of the quantitative easing that began in early 2009 has caused the value of the dollar to fall relative to other currencies since then, and encouraged investors to hedge against inflation by buying commodities. The price of gold has risen more than 120 percent since 2009, and has become the universal hedge against the falling dollar. The devaluation of the dollar might have more to do with what we pay at Citgo than the way Saudi Arabia handles its resources.
In the early months of 2012, gas prices soared to more than $3.90, but leveled off by May. If seasonal fuel-grade production changes were to blame, perhaps a similar pattern will emerge this year. But the liquidity bubble the Fed has created may finally burst, meaning this rise in prices could be the first sign of a broad-scale inflation.
Though the largely unaccountable Federal Reserve tinkers with our economy at a high price, reforming it remains a long-term solution. But enacting sensible energy policy can happen today. Because in addition to enduring painful gas spikes, we’ve put up with Obama’s inaction for far too long as well.